CCP Credit Policy & Procedures 2 — Questions and Answers
Question 1: A credit policy states that all accounts over $50,000 must be reviewed quarterly. A $75,000 account has been stable for three years with no late payments. What should the credit analyst do?
- Skip the review since the account is stable
- Complete the quarterly review as required by policy (Correct answer)
- Change the account's review cycle to annual
- Escalate to management to waive the requirement
Correct answer: Complete the quarterly review as required by policy
Credit policies apply uniformly regardless of account history; stable accounts should still be reviewed to confirm conditions have not changed.
Question 2: Which element is MOST critical when establishing credit limits within a credit policy?
- The customer's industry sector
- The salesperson's revenue targets
- The customer's financial capacity to repay (Correct answer)
- The competitor's credit terms
Correct answer: The customer's financial capacity to repay
Credit limits must be grounded in the customer's demonstrated financial capacity, including cash flow and net worth, to ensure collectibility.
Question 3: A credit policy requires two approvals for any credit extension above $100,000. An urgent order for $120,000 arrives and only one approver is available. What is the correct course of action?
- Approve the order with one signature and note the urgency
- Delay shipment until dual approval is obtained (Correct answer)
- Reduce the order to $99,999 to avoid the threshold
- Ask the sales team to split the order into two invoices
Correct answer: Delay shipment until dual approval is obtained
Dual-approval controls exist to prevent single-point fraud and error; circumventing them undermines internal controls.
Question 4: What is the primary purpose of including a credit hold procedure within a credit policy?
- To penalize slow-paying customers
- To stop new shipments when a customer's account is delinquent (Correct answer)
- To notify the sales team of pricing disputes
- To trigger automatic write-offs of aged receivables
Correct answer: To stop new shipments when a customer's account is delinquent
Credit holds protect the company from extending additional exposure to customers already delinquent on existing obligations.
Question 5: When a credit policy is revised, which stakeholder group is MOST important to notify promptly?
- External auditors
- All employees who extend or approve credit (Correct answer)
- Only the CFO and CEO
- Customers whose terms are affected
Correct answer: All employees who extend or approve credit
Internal staff executing credit decisions must be trained on revised policy to ensure consistent and compliant application.
Question 6: A company's credit policy does not address cryptocurrency payments. A large customer requests to pay invoices in Bitcoin. What is the best initial action?
- Accept the payment since policy does not prohibit it
- Refuse the payment since it is not listed as approved
- Escalate to management for a policy determination before accepting (Correct answer)
- Request a personal guarantee before accepting
Correct answer: Escalate to management for a policy determination before accepting
Gaps in credit policy should be escalated to management for a formal ruling rather than improvised at the analyst level.
Question 7: Under a standard credit policy, what distinguishes a credit limit from a credit line?
- A credit limit applies to a single transaction; a credit line applies to all transactions
- A credit limit is the maximum outstanding balance allowed; a credit line is a revolving facility drawn at will (Correct answer)
- A credit limit requires collateral; a credit line does not
- A credit limit is set by sales; a credit line is set by finance
Correct answer: A credit limit is the maximum outstanding balance allowed; a credit line is a revolving facility drawn at will
A credit limit caps total outstanding exposure for a customer, while a credit line is a revolving authorization the customer can draw on repeatedly up to that cap.
CCP Credit Policy & Procedures 2
A credit policy states that all accounts over $50,000 must be reviewed quarterly.
A $75,000 account has been stable for three years with no late payments.
What should the credit analyst do?